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Dendreon Misses Estimates, Cuts Jobs - Analyst Blog

Dendreon Corporation
(
DNDN
) reported second-quarter 2012 loss (including stock-based
compensation expense but excluding other special items) of 63 cents
per share, wider than the Zacks Consensus Estimate of a loss of 59
cents but narrower than the year-ago loss of 79 cents per share.

Total revenue in the reported quarter climbed 66.1% to $80 million
in the comparable quarter of 2011. Revenues in the reported quarter
were driven by a rise in Provenge sales. Revenues, however, were
below the Zacks Consensus Estimate of $86 million.

Quarter in Details

Dendreon's sole marketed product is Provenge (sipuleucel-T), a
therapeutic vaccine for treating advanced prostate cancer, which
was launched in the US in May 2010.

Dendreon reported net product revenue of $80.0 million, up 66.1%
from the comparable quarter of 2011. Revenues were down 2.4%
sequentially. The company has identified three factors - high
vacancy rate in the sales force, high rate of infusion
cancellations in late June and greater focus on urology accounts
than oncology and academic accounts - for the disappointing
performance of Provenge. The company is trying to resolve these
issues and expects to see an improvement from the first quarter of
2013.

Research & development (R&D) expenses were $19.7 million,
reflecting a year-over-year increase of 6.1%. The company expects
R&D expenses to remain flat sequentially at $20 million in the
next two quarters. Selling, general & administrative (SG&A)
expenses for the second quarter decreased 23.7% to $80.2 million.
The second quarter 2011 SG&A included manufacturing start-up
costs of approximately $34 million.

Provenge Update

According to management, the reimbursement environment is stable.
The physicians are comfortable prescribing Provenge as the average
time to payment for physicians is less than 30 days.

Dendreon reported that the number of centers where patients can be
treated with Provenge increased from 723 at the end of the first
quarter of 2012 to 874 centers at the end of the second quarter of
2012.

Based on Provenge's disappointing track record, we do not see
significant sales growth in the near future. Currently approved
prostate cancer treatments include
Johnson & Johnson's
(
JNJ
) Zytiga, which has been putting up an impressive performance.
Moreover, the prostate cancer market could see new entrants in the
form of
Medivation's
(
MDVN
) enzalutamide, which is currently under regulatory review
(response expected in November 2012) and Bavarian Nordic's Prostvac
(phase III).

Restructuring Initiative

Along with the second quarter earnings, Dendreon announced a
restructuring plan for the next 12 months. The company plans to
close down the Morris Plains, New Jersey unit by the fourth quarter
of 2012. The company plans to operate through its Union City, GA
and Seal Beach, CA facilities. The two facilities together have a
manufacturing capacity of approximately $1 billion of Provenge,
which can be doubled with the implementation of automation.

The company plans to reduce the number of employees by 600 (both
full-time and contractual) in the next 12 months. Apart from this,
Dendreon also plans to reorganize the manufacturing network and cut
costs across the company.

The restructuring initiatives are expected to yield savings of
approximately $150 million per year. On implementation of the plan,
the cost of goods sold (COGS) is also expected to decline to 50% of
net product revenue as compared to 77% in the second quarter of
2012. The company expects to see the results of these initiatives
from the first half of 2013.

Outlook

The company now expects to achieve cash breakeven at $100 million
net revenue each quarter or annual net revenue to be $400 million.
(previous guidance: $125 million per quarter)

Our Recommendation

We currently have a Neutral recommendation on Dendreon. The stock
carries a Zacks #3 Rank (Hold rating) in the short run.

The successful commercialization of Provenge is crucial for the
financial performance of Dendreon as it can drive the company to
profitability. We prefer to remain on the sidelines until we see
meaningful improvement in Provenge sales.

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